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Some of the most dramatic energy developments of recent years have been in the realm of natural gas. Huge quantities of unconventional US shale gas are now commercially viable, changing the strategic picture for the United States by making it self-sufficient in natural gas for the foreseeable future. This development alone has reverberated around the globe, causing shifts in patterns of trade and leading other countries in Europe and Asia to explore their own shale gas potential. Such developments are putting pressure on longstanding arrangements, such as oil-linked gas contracts and the separate nature of North American, European, and Asian gas markets, and may lead to strategic shifts, such as the weakening of Russia’s dominance in the European gas market.

Against this backdrop, the Energy Forum of Rice University’s James A. Baker III Institute for Public Policy and the Geopolitics of Energy Project at Harvard University’s Kennedy School have launched a two-year study on the geopolitical implications of natural gas. The project is co-directed by Amy Myers Jaffe and Meghan O’Sullivan and brings together experts from academia and industry to explore the potential for new quantities of conventional and unconventional natural gas reaching global markets in the years ahead. The effort draws on more than 15 experts on producer and consumer countries who will assess the prospects for gas consumption and production in the country in question, based on anticipated political, economic, and policy trends. Building on these case studies, the project will formulate different scenarios and use the Rice World Gas Trade Model to assess the cumulative impact of country-specific changes on the global gas market and, more broadly, on geopolitics.

On May 9-10, 2012, the Geopolitics of Natural Gas study held its third workshop to develop scenarios for the geopolitics of natural gas.1 At this gathering, the members of the two-year project met at Rice University’s James A. Baker III Institute for Public Policy in Houston. The two-day session brought together experts on major gas producing and consuming countries, economists specializing in gas trade modeling, and industry representatives. On day one of the workshop, the group explored the dynamics of the politics and economics of gas in major world regions. The discussion helped participants better understand trends and links between regions.

On day two, Wim Thomas, Chief Energy Advisor of Shell, facilitated a scenario planning exercise on the future of natural gas, looking at the time horizons to 2015, 2020, and 2030. Participants developed four global scenarios. The scenario planning exercise offered critical insights into distinctly different trajectories for the future of gas markets. Over the next year, the research team will refine these global scenarios.

This report proceeds as follows: First, we present key results of a preliminary reference scenario offered by the Rice World Gas Trade Model (RWGTM). This reference scenario includes inputs developed at prior study workshops. The reference scenario offers initial insights into changes in natural gas trade flows that might come about in the coming decades based on a projection of current and expected geopolitical factors. Then the report offers four global scenarios, which differ along two dimensions: the level of success of bringing unconventional gas to the market and the level of liberalization of global gas trade. These scenarios are the result of two days of deliberations about the changing geopolitics of natural gas and their impact on market and pricing. This report reflects parts of the discussion of the expert group to stimulate discussion on the topic. It is not meant to provide a comprehensive treatment of global gas politics and markets.

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